# Calculating elasticity for each of the given variables

The following questions refer to this regression equation. (Standard errors in parentheses.)

QD = 15,000 - 10 P + 1500 A + 4 PX + 2 I, (5,234) (2.29) (525) (1.75) (1.5)

R2 = 0.65

N = 120

F = 35.25

Standard error of Y estimate = 565

Q = Quantity demanded

P = Price = 7,000

A = Advertising expense, in thousands = 54

PX = price of competitor's product = 8,000

I = average monthly income = 4,000

Calculate the elasticity for each variable and briefly comment on what information this gives you in each case.

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#### Solution Preview

QD =15000-10P+1500A+4PX+2I

Put

P 7,000

A =54

PX = 8,000

I = 4,000

QD=15000-10*7000+1500*54+4*8000+2*4000=66000

Calculating Own price elasticity of demand

QD =15000-10P+1500A+4PX+2I

dQD/dP=-10

Own Price=P=$7000

QD=66000 (as calculated above)

Own price elasticity of demand =(dQD/dP)*(P/Q)=-10*(7000/66000)= -1.06

For 1% increase in price quantity demanded will decrease by 1.06%. For 1% decrease in price, quantity demanded will increase by ...

#### Solution Summary

Solution describes the steps to calculate elasticity for each of the given variables.